When your limited company buys equipment, machinery, or other assets for use in the business, the cost isn’t always treated the same way as an everyday business expense.
Instead, your company may be able to claim capital allowances. In many cases, these allow you to deduct the full cost of an asset from your taxable profits in the year you buy it. In others, the tax relief is spread over several years.
There are several types of capital allowances, and the rules changed again in 2026. Here’s how the main allowances work and which purchases they apply to.
What are capital allowances?
It goes without saying that, for any business, using the available tax reliefs can help maximise profitability.
Capital allowances are a relief on your capital expenditure, allowing you to deduct part or all of the value of an item you’ve purchased from your taxable profits before the Corporation Tax due is calculated.
This is different from ordinary day-to-day business expenses.
If your company buys an asset which it expects to use for several years, such as a computer or piece of machinery, the purchase may be capitalised in the company accounts rather than treated as a day-to-day expense.
Capital allowances are the way your company gets tax relief on many of these purchases.
What costs can you claim?
Capital allowances cover many of the assets that are capitalised on your balance sheet. This includes machinery and equipment you’ve purchased for your business.
For a typical limited company, this might include:
- Computers and other IT equipment.
- Office furniture.
- Tools and machinery.
- Vans and some other vehicles.
- Certain fixtures within business premises.
HMRC categorises most of these assets as ‘plant and machinery’. You can find more detail about what you can claim capital allowances on at GOV.UK.
Plant and machinery is a wider category than the name might suggest. In addition to equipment and machinery, it can include fixtures such as fitted kitchens, fire alarms, and CCTV systems. Some parts of a building, including electrical, lighting, heating, ventilation and air-conditioning systems, are classed as ‘integral features’.
Land and buildings themselves aren’t normally covered by plant and machinery allowances. There is a separate Structures and Buildings Allowance for certain qualifying expenditure on non-residential structures and buildings.
Cars are also covered by capital allowances, but separate rules apply to them.
How much can you claim?
This is where it can seem a little more complicated, as the amount you can claim depends on which capital allowance the item qualifies for.
- Annual Investment Allowance (AIA) – this allows you to deduct the full cost of most qualifying plant and machinery, up to an annual limit of £1 million. Most smaller companies will therefore be able to claim the full cost of qualifying equipment in the year they buy it. Cars don’t qualify for AIA, nor do items you owned for another reason before you started using them in the business. You can read more about the Annual Investment Allowance on GOV.UK.
- Writing down allowances – for items where you haven’t claimed AIA or another first-year allowance, you can claim a percentage of the remaining value each year. From 1 April 2026, the main rate for companies is 14%, down from 18%. The special rate remains 6%. If your accounting period straddles 1 April 2026, a hybrid rate applies. HMRC explains the current writing down allowance rates and pools here.
- 100% first-year allowances – first-year allowances give 100% tax relief on certain types of qualifying expenditure in the year the asset is bought. These are available for specific assets and circumstances rather than being a general allowance for company purchases.
- Full expensing and the 50% first-year allowance – companies can claim 100% of the cost of qualifying new and unused main-rate plant and machinery through full expensing. A 50% first-year allowance is also available for qualifying new and unused special-rate expenditure. Unlike AIA, there is no £1 million annual limit on full expensing. HMRC has a separate guide to full expensing and the 50% first-year allowance.
- 40% first-year allowance – a new 40% first-year allowance applies to qualifying expenditure from 1 January 2026. The asset must be new and unused and qualify for the main rate of writing down allowances. Cars don’t qualify. You can deduct 40% of the cost in the first year and claim writing down allowances on the remaining balance in later accounting periods. HMRC explains the 40% first-year allowance here.
The new 40% allowance is permanent and is available more widely than full expensing, including to qualifying expenditure by unincorporated businesses. For most small limited companies, however, the AIA will continue to cover ordinary purchases of equipment comfortably within its £1 million annual limit.
A simple capital allowances example
If, for example, your company buys £5,000 of new computer equipment which qualifies for the Annual Investment Allowance.
Rather than spreading the tax relief over the expected life of the computers, the company can normally claim the full £5,000 under the AIA in the accounting period in which it buys them.
This reduces the company’s taxable profit by £5,000.
If the same expenditure didn’t qualify for AIA or another first-year allowance, it may instead go into the appropriate capital allowance pool. The company would then claim a percentage of the remaining balance each year through writing down allowances.
This distinction is important because an asset can appear in your company accounts for several years even where you’ve already received 100% tax relief on its cost. The accounting treatment and the Corporation Tax treatment aren’t necessarily the same thing.
What about company cars?
Cars are treated differently from most other business equipment.
You can’t claim the Annual Investment Allowance, full expensing or the new 40% first-year allowance on a car.
Instead, the available capital allowance will depend largely on the car’s CO2 emissions and the date of purchase.
For cars which go into the main rate pool, the writing down allowance for companies is 14% from 1 April 2026. Cars that fall into the special rate pool receive the 6% write-down allowance.
If the company provides a car to a director or employee and they use it privately, the company can still claim capital allowances on the full cost. The private use may, however, give rise to a taxable company car benefit for the individual.
You can check the current rules in HMRC’s capital allowances guidance for business cars.
What happens when you sell an asset?
Buying an asset isn’t necessarily the end of the capital allowances calculation.
If your company later sells an item on which it has claimed capital allowances, the amount it receives has to be taken into account.
For an asset in a capital allowances pool, the disposal value will normally be deducted from the relevant pool. Depending on the figures involved, this can reduce the amount on which you claim future writing down allowances.
A ‘balancing charge’ can also arise. Broadly, this can happen where the disposal value means the company has previously received more capital allowances than it is ultimately entitled to after taking the sale into account.
For example, if you’ve claimed 100% of an asset’s cost through AIA and subsequently sell it, you can’t simply ignore the money the company receives from the sale.
Read this HMRC guidance to find out what happens when you sell or dispose of an asset after claiming capital allowances.
How do you claim capital allowances?
For limited companies, your capital allowances must be claimed on your Company Tax Return in a separate calculation.
It’s advisable to speak to your accountant. They will be able to work out how much you can claim, which allowance should be used and include the figures in your company’s tax return.
Keep invoices for any equipment, machinery, vehicles or other significant assets your company buys and make sure your accountant knows what each purchase was for.
You don’t always have to claim the maximum allowance available. Depending on your company’s circumstances, your accountant may decide that a different treatment makes more sense.
This can be particularly relevant if the company has made a loss or has more qualifying expenditure than it needs to relieve its taxable profits for the period.
HMRC has a complete collection of capital allowances guidance and technical information if you want to look at any of the rules in more detail.
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